Inner city stores attract immigrant owners who are risk takers and have lower opportunity costs of alternative employment.

Why are so many inner-city stores owned by immigrants?

Leaving one's native country is a big decision. Those who set out for the New World are highly motivated to achieve success. Consequently, first-generation immigrants are self-selected to be risk-takers with above average ambition. Their manifest acceptance of the risks, hardships, and long-hours of entrepreneurial commerce set them apart from other domestic residents. What's more, the ability to be perfectly fluent in English is less important in retail operations than in other fields.

Hence, it is really rather expected that immigrants would work in the openly competitive industry of retail. But where? The rental cost of space is, to a large extent, a function of safety, location, and affluence of the neighborhood. Retail space in older inner-city locations is generally cheaper than in the suburbs. The risk that stores will more likely fail in inner-city locations makes most national chains and franchises avoid these locations: Seven-Elevens and Open Pantries have moved to higher-priced locations. But the low costs of starting a business and the lack of competition from national chains in these locations are attractive to immigrants starting businesses.

But why don't domestic residents invest there? Their opportunity cost of time, money, and effort must be too great. Domestic residents prefer employment with firms that offer health insurance, paid vacations, and moderate hours of work. Why work in your own retail outlets ninety hours a week for the same money you can earn working at a 9 to 5 job?

Note:

Associate Professor in the School of Business Administration at the University of Wisconsin-Milwaukee.

Associate Professor in the School of Business Administration at the University of Wisconsin-Milwaukee.

References:

Marcus, R. "Why Do Immigrants Own Inner-City Stores?" Ideas on Liberty, August 2001, p. 40 Abridged reprint with permission from the editor of Ideas on Liberty